government

Seniors expected to pay more under Medicare premium-support model

Critics say the Kaiser study assumes beneficiaries will opt to pay more for pricier plans when given more insurance options.

By Charles Fiegl — Posted Nov. 12, 2012

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Most seniors would find themselves paying more for Medicare coverage under proposals that would have them select private plans under a defined contribution system, according to a study by the Kaiser Family Foundation.

The Kaiser researchers sought to study the projected effects on beneficiaries of what is commonly termed the premium-support model for Medicare, under which seniors would be given a fixed amount with which to purchase a Medicare coverage plan. A number of lawmakers and health policy analysts have proposed such an idea to convert Medicare from a program of defined benefits to one of defined contributions.

House Budget Committee Chair Paul Ryan (R, Wis.), the 2012 Republican nominee for vice president, has drafted different versions of a premium-support proposal with Sen. Ron Wyden (D, Ore.) and former Clinton White House official Alice Rivlin, PhD. Ryan also has proposed plans without the input of his Democratic colleagues, including legislation approved by House Republicans but blocked by the Democrat-controlled Senate. Former Massachusetts Gov. Mitt Romney supported a premium-support concept for Medicare reform during his presidential campaign.

Authors of the Kaiser study did not evaluate a particular proposal, but they considered the basic principles at the heart of most of the plans. For instance, some proposals would set defined contribution amounts to be equal to the amount needed to purchase the second-most inexpensive private plan available to beneficiaries. If beneficiaries decided to choose a more generous plan than the benchmark selection, they would need to pay out of pocket for the premium amount not covered by their federal subsidies.

The effects of the premium-support system on patient costs would depend on several factors, including where the beneficiary lives and what plan choices are available in the area, the study said. To understand local markets, researchers used actual 2010 Medicare Advantage bids from insurers. About 11 million patients, or 25% of beneficiaries, enrolled in the private Medicare plans that year.

The analysis found nearly 60% of beneficiaries would pay higher premiums than they do under the current program. “This analysis layers a premium-support system onto the current system, which assumes current plan preferences among Medicare beneficiaries,” the report said. “If as many as 25% of beneficiaries enroll in the benchmark plan, then the share of beneficiaries subject to higher premiums would drop from 59% to 35%.”

Most patients who have traditional Medicare coverage would pay higher premiums. The analysis shows beneficiaries paying an average of $60 more per month under the new system, while 27% of beneficiaries would pay an additional $100 a month. Fewer than half, 47%, would pay the same amount.

Most of the variations in premiums depend on where the beneficiary lives. The authors noted parts of the country where private plan premiums are higher than the costs of traditional Medicare. For instance, more than 90% of Medicare patients in Connecticut, Florida, Massachusetts and New Jersey would see higher premiums. In Florida, 77% of beneficiaries would pay at least $100 more in monthly premiums.

Supporters of defined-contribution models rebutted the study’s findings by stating that seniors would have strong financial incentives to select lower-cost options. The study underestimates beneficiaries and their ability to make smart fiscal choices, said Joseph Antos, PhD, the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the conservative American Enterprise Institute in Washington. He argues that seniors would weigh the benefits of each plan option against any additional price tag for the plan’s premiums.

In one version of a defined contribution model, the federal money patients received for insurance could be used to purchase either a traditional Medicare or private health plan, he said. Seniors could choose to pay more for plans offering more coverage or continue to receive the same benefits under traditional Medicare at a lower cost compared to other offers.

“It’s not reasonable to say that seniors would fail to respond to a clear financial incentive,” Antos said.

But beneficiaries are not choosing the lowest-cost plans now, said Tricia Neuman, ScD, one of the Kaiser study authors. The researchers could not point to a single answer for how beneficiaries would behave as consumers in the new marketplace. It’s true that they could gravitate toward lower-cost plans, but there’s no evidence to support that is what beneficiaries would do, she said.

Furthermore, studies on the Medicare drug plan marketplace show a high rate of “stickiness,” Neuman said. In 2008, only 6% of Part D enrollees switched plans. In the federal employee health program, only about 12% of beneficiaries changed plans annually between 1996 and 2001.

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